Market Overview

Tickers

Articles

Keywords

Fentura Financial, Inc. Announces Third Quarter 2017 Results

FENTON, Mich., Nov. 07, 2017 (GLOBE NEWSWIRE) -- Fentura Financial, Inc. announces another record breaking quarter showing pre-tax, pre-provison basis earnings of $4.6 million in the current quarter compared to $2.9 million in the prior quarter and $1.9 million reported for the quarter ended September 30, 2016. Net income for the three months ended September 30, 2017 was $3.3 million compared to net income of $1.9 million reported for the second quarter of 2017 and $1.3 million reported for the three months ended September 30, 2016. For the nine months ended September 30, 2017 the Company reported net income of $6.5 million compared to net income of $3.2 million for the same period in 2016. Included in both quarterly and year to date operating results are two non-recurring non-interest income transactions totaling approximately $1.5 million (pre-tax). The first is a gain on a note payable and the second is proceeds from a bank owned life insurance policy. Excluding these one-time items, the Company's results would continue to reflect the most profitable quarter on record.

Almost 69.6% growth in net income quarter over quarter

Quarterly earnings per share growth of 68.5% over prior quarter

Book value increased 14.3% to $15.75 per share year over year

Gross loans grew 6.2% during the quarter

Year to date efficiency ratio improved to 63.8% as compared to 71.1% in the same period in the prior year.

Ronald L. Justice, President and CEO said, "Our strong operating results reflect the commitment of our entire team to organically grow our franchise by attracting new and expanding existing client relationships in all business lines. By expanding client relationships we have enhanced net interest income while improving our efficiency, thus strengthening our bottom line. We are very excited about our 15.3% improvement in Fentura's stock trading price throughout this year, supported by our financial results. As noted last quarter, controlled growth continues to be our primary focus, while we remain open to other opportunities to expand and grow."

Note that in the analysis provided, all historical information prior to December 31, 2016 excludes any impact of the Community State Bank acquisition.

Balance Sheet

Total assets increased 3.6% quarter over quarter increasing $26.4 million from June 30, 2017, ending the quarter at $757.0 million. When compared to December 31, 2016, assets at September 30, 2017, increased $53.6 million or 7.6%.

Cash totals decreased during the quarter primarily due to the Corporation's ability to redeploy liquid assets into the higher yielding loan portfolio. As such, gross loan balances increased $37.0 million or 6.2% quarter over quarter. Commercial and mortgage loan portfolios both grew during the quarter. All portfolios, including consumer showed growth over year end 2016 levels. Gross loans totaled $633.4 million at September 30, 2017. When compared to the most recent year end, loans increased $113.7 million or 21.9%. The increase in loans primarily resulted from the Company's efforts to grow its loan portfolio with new and existing clients, with a primary focus on its core markets and assessment area. Additionally, the Company has continued its success in offering customers products whose terms help manage interest rate risk in changing interest rate environments. The bulk of the growth was in the commercial and residential mortgage portfolios. It is the Bank's intention to continue to monitor the relative sizes of the respective portfolios in order to balance yield and risk.

The composition of the loan portfolio is shown below (dollars in thousands):

9/30/2017

6/30/2017

3/31/2017

12/31/2016

9/30/2016

Residential Real Estate

$

235,829

$

208,724

$

204,975

$

180,685

$

140,962

Commercial Real Estate

272,292

252,076

226,530

233,358

190,155

Consumer

55,345

56,152

47,379

38,186

30,151

Commercial

69,921

79,481

75,885

67,414

52,354

Gross Loans

$

633,387

$

596,433

$

554,769

$

519,644

$

413,622

Deposit totals of $625.6 million at the end of the quarter, showed an increase of $11.4 million or 1.9% compared to $614.2 million reported at June 30, 2017. The increases were in the time and interest bearing accounts, with those increases being partially offset by a modest decrease in non-interest bearing deposits. We continue to see very little runoff of the initial DDA balances acquired in the Community State Bank transaction, which we now refer to as the Great Lakes Bay Region, and have actually seen an increase in DDA totals when including new accounts. We continue to have success attracting new municipal account relationships, which has enhanced overall deposit growth, along with a focus on deposits by our commercial relationship officers. A portion of municipal deposits can have seasonal volatility, though no indications have been made that the balances will see material decreases in the near term. Historically the fourth quarter has been a period of inflow of municipal deposits, though that cannot be ensured. For the nine months ended September 30, 2017, deposits increased $22.2 million or 3.7% through growth in non-interest bearing deposits.

Capital

Fentura Financial, Inc. and The State Bank continue to maintain solid capital ratios in excess of levels considered adequately capitalized by regulatory agencies. The Bank's regulatory capital ratios are detailed in the table that follows, and indicate the Bank's strong Tier 1 Leverage Capital Ratio at September 30, 2017 and December 31, 2016. The decline in the ratios during the year is primarily due to our robust asset growth and an upstream dividend to Fentura Financial, Inc.

9/30/2017

12/31/2016

9/30/2016

Regulatory Well Capitalized

Tier 1 Leverage Capital Ratio

8.61

%

11.69

%

9.52

%

5.00

%

Tier 1 Risk-Based Capital Ratio

9.70

%

10.72

%

11.37

%

8.00

%

Total Risk-Based Capital Ratio

10.21

%

11.24

%

12.27

%

10.00

%

Credit Quality

The trend of solid credit quality metrics continued into the third quarter of 2017. The delinquency numbers when compared to 2016 rose due primarily to the acquired portfolio, with the legacy portfolio continuing to have no reportable delinquencies at quarter end. At September 30, 2017 loan delinquencies to total loans were 0.26% compared to 0.00% at September 30, 2016. Delinquent loans, net of non-accrual loans, were 0.07% of gross loans at September 30, 2017. Total loan delinquencies at December 31, 2016 were 0.74% inclusive of the acquired portfolio. Loans on non-accrual status and/or 90 or more days delinquent totaled $1.2 million at September 30, 2017, compared to $2.0 million at December 31, 2016. As noted last quarter, the decline in both of these metrics reflects the synchronization of collection processes and procedures on the acquired portfolio with those consistent with The State Bank. The overall Allowance for Loan Losses of $3.3 million or 0.52% of Gross Loans is reflective of the historical performance of The State Bank's loan portfolio and does not reflect the performance of the acquired portfolio. Pursuant to purchase accounting standards the acquired loans were marked to market at the acquisition date of December 31, 2016. The balance of the loan mark at September 30, 2017 is $3.9 million, or 5.6% of the remaining balance of the acquired loans. The Allowance for Loan Losses is analyzed on a quarterly basis and at the end of the current quarter the Company believes that the Allowance for Loan Loss is appropriate based on the estimate of incurred losses within the portfolio.

Net Interest Income

Net interest income of $6.8 million for the quarter ended September 30, 2017 reflects a $221,000 or 3.4% increase compared to the quarter ended June 30, 2017 and a 67.1% increase relative to the $4.1 million reported for the quarter ended September 30, 2016. The causes of the increases noted are primarily increased volume (largely due to the Community State Bank acquisition), though market rate increases earlier in the year have benefited net interest income with the margin increasing 8 and 11 basis points in the prior year quarter and year to date comparative periods, respectively. Additionally, the significant year to date growth in non-interest deposits has also assisted in expanding the net interest margin. Finally, in the year to date period, as noted in the previous quarter's release, the accretion of the loan mark taken on the loans acquired from Community State Bank also added to the margin. We remain somewhat asset sensitive allowing us to capture increased net interest income should short term rates continue to rise.

Noninterest Income

Noninterest income was $3.4 million for the quarter ended September 30, 2017 compared to $2.1 million for the second quarter of 2017 and $1.9 million for the third quarter of 2016. As previously noted, noninterest income for the third quarter included a gain from a note payable and proceeds from a bank owned life insurance policy totaling $1.5 million. Additionally, the acquisition of Community State Bank has enhanced service charge income with the additional deposit customers added to our portfolio. Partially offsetting these increases was a decline in gains on sold loans on both a year to year and quarterly basis. This decline is based on more portfolio held loans in the current period production versus loans sold.

Noninterest Expense

The Company recorded $5.6 million of noninterest expense in the quarter ended September 30, 2017, a decrease of $161,000 compared to the $5.7 million reported in the second quarter of 2017 and a $1.6 million increase over the $4.0 million reported in the third quarter of 2016. The current quarter decrease compared to the prior quarter is based on a decline in professional expenses following the acquisition and conversion of Community State Bank and declines in loan and collection expenses. For the nine months ended September 30, 2017, noninterest expense totaled $16.5 million, an increase of $4.5 million or 37.9% over the $12.0 million reported for the same period of 2016. This increase was primarily due to the additional costs associated with operating the offices in our acquired markets, specifically the additional staff and facilities.

Sep-17

Jun-17

Mar-17

Dec-16

Sep-16

Unaudited

Unaudited

Unaudited

Unaudited

Balance Sheet Highlights

Cash and due from banks

15,578

16,715

43,547

78,313

47,229

Fed funds sold

0

11,900

23,800

0

0

Investment securities

69,799

73,118

74,311

74,232

23,300

Commercial loans

358,457

332,071

307,855

324,261

244,171

Consumer loans

55,345

56,154

53,998

37,700

32,009

Mortgage loans

219,585

208,192

192,916

157,683

137,442

Gross loans

633,387

596,417

554,769

519,644

413,622

ALLL

-3,262

-3,092

-2,877

-2,851

-3,645

Intangible assets

5,272

5,397

5,587

5,745

0

Other assets

36,215

30,218

32,072

28,267

20,045

Total assets

756,989

730,548

730,894

703,350

500,551

Non-interest deposits

213,523

219,763

214,706

160,903

125,393

Interest bearing non-maturity deposits

314,264

297,799

312,700

332,203

211,882

Time deposits

97,801

96,605

102,649

110,261

81,574

Total deposits

625,588

614,167

630,055

603,367

418,849

Borrowings

64,000

59,000

44,000

44,000

44,000

Other liabilities

6,240

3,400

4,598

5,323

2,654

Equity

57,161

53,981

52,241

50,660

35,048

756,989

730,548

730,894

703,350

500,551

BALANCE SHEET RATIOS

Gross Loans to Deposits

101.25

97.11

88.05

86.12

98.75

Earning Assets to Total Assets

92.89

93.28

89.33

84.44

87.29

Securities and Cash to Assets

11.28

13.93

19.38

21.69

14.09

Deposits to Assets

82.64

84.07

86.2

85.78

83.68

Loss Reserve to Gross Loans

0.52

0.52

0.52

0.55

0.88

Net Charge-Offs to Gross Loans

-0.01

%

-0.01

%

-0.02

%

-0.01

%

-0.02

%

Leverage Ratio - The State Bank

8.61

8.3

7.83

12.51

9.54

Tangible Book Value per Share

14.32

13.42

12.9

12.43

13.78

Book Value per Share

15.75

14.89

14.42

14

13.78

Income Statement Highlights - QTD

Sep-17

Jun-17

Mar-17

Dec-16

Sep-16

Unaudited

Unaudited

Unaudited

Unaudited

Unaudited

Interest income

7,565

7,254

6,427

4,952

4,657

Interest expense

792

702

687

614

601

Net interest income

6,773

6,552

5,740

4,338

4,056

Provision for loan loss

136

125

0

-900

0

Service charges on deposit accounts

290

303

235

228

192

Gain on sale of mortgage loans

628

802

356

789

872

Wealth management income

370

403

321

288

396

Other non-interest income

2,108

630

322

487

417

Total non-interest income

3,396

2,138

1,234

1,792

1,877

Salaries and benefits

3,028

3,028

2,705

2,700

2,209

Occupancy and equipment

790

793

736

581

610

Loan and collection

97

131

117

189

135

Merger transaction expenses

97

50

33

728

0

Other operating expenses

1,569

1,740

1,504

993

1,035

Total non-interest expense

5,581

5,742

5,095

5,191

3,989

Net Income before tax

4,452

2,823

1,879

1,839

1,944

Income Taxes

1,164

884

592

636

659

Net Income

3,288

1,939

1,287

1,203

1,285

"Core" Net Income

4,685

2,998

1,912

1,667

1,944

INCOME STATEMENT RATIOS/DATA

Basic earnings per share

0.91

0.53

0.37

0.41

0.51

Pre-tax pre-provision earnings

4,588

2,948

1,879

939

1,944

Net Charge offs

-34

-67

-59

-65

-52

Return on Equity (ROE)

17.08

%

14.49

%

9.51

%

7.03

%

14.57

%

Return on Assets (ROA)

1.76

%

1.09

%

0.75

%

0.92

%

1.05

%

Efficiency Ratio

54.88

%

66.08

%

73.06

%

84.68

%

67.23

%

Average Bank Prime

4.25

%

4.25

%

3.85

%

3.50

%

3.50

%

Average Earning Asset Yield

4.34

%

4.37

%

4.27

%

4.28

%

4.32

%

Average Cost of Funds

0.69

%

0.61

%

0.56

%

0.75

%

0.78

%

Spread

3.64

%

3.77

%

3.71

%

3.53

%

3.57

%

Net impact of free funds

0.24

%

0.18

%

0.11

%

0.22

%

0.21

%

Net Interest Margin

3.89

%

3.95

%

3.82

%

3.75

%

3.78

%

Income Statement Highlights - YTD

Sep-17

Sep-16

Dec-16

Dec-15

Unaudited

Unaudited

Interest income

21,246

13,693

18,645

16,652

Interest expense

2,182

1,758

2,372

2,152

Net interest income

19,064

11,935

16,273

14,500

Provision for loan loss

261

0

-900

-1,000

Service charges on deposit accounts

829

551

779

806

Gain on sale of mortgage loans

1,787

1,947

3,038

1,975

Wealth management income

1,093

1,079

1,367

1,255

Other non-interest income

3,085

1,303

1,474

2,065

Total non-interest income

6,794

4,880

6,658

6,101

Salaries and benefits

8,760

6,844

9,544

8,826

Occupancy and equipment

2,319

1,753

2,334

2,262

Merger transaction expenses

294

0

728

0

Loan and collection

346

371

561

565

Other operating expenses

4,769

2,992

3,930

3,324

Total non-interest expenses

16,488

11,960

17,097

14,977

Net Income before tax

9,109

4,855

6,734

6,624

Income Taxes

2,640

1,657

2,293

2,407

Net Income from continuing operations

6,469

3,198

4,441

4,217

INCOME STATEMENT RATIOS/DATA

Basic earnings per share

1.78

1.27

1.7

1.87

Pre-tax pre-provision earnings

9,370

4,855

5,834

5,624

Net Charge offs

-127

-26

-26

-59

Return on Equity (ROE)

13.70

%

12.55

%

10.26

%

11.44

%

Return on Assets (ROA)

1.18

%

0.92

%

0.92

%

1.00

%

Efficiency Ratio

63.76

%

71.13

%

74.56

%

72.70

%

Average Bank Prime

4.10

%

3.50

%

3.50

%

3.50

%

Average Earning Asset Yield

4.33

%

4.38

%

4.35

%

4.48

%

Average Cost of Funds

0.62

%

0.77

%

0.76

%

0.77

%

Spread

3.71

%

3.61

%

3.59

%

3.71

%

Net impact of free funds

0.18

%

0.21

%

0.21

%

0.19

%

Net Interest Margin

3.89

%

3.81

%

3.80

%

3.90

%

AboutFentura FinancialandThe State Bank

Fentura Financial is the holding company for The State Bank. It was formed in 1987 and is traded on the OTCQX exchange under the symbol FETM, and was recognized as one of the Top 50 performing stocks in 2016 on that exchange.

The State Bank is a full-service, 4-Star Bauer Financial rated commercial, retail and trust bank headquartered in Fenton, Michigan. It has assets of approximately $757 million. It currently operates fifteen full-service branches located in Genesee, Livingston, Oakland, Saginaw and Shiawassee Counties and loan production offices in Washtenaw and Saginaw Counties. The State Bank's commercial department provides a complete array of products including lines of credit, term loans, commercial mortgages, SBA loans and a full-suite of cash management products. The retail department offers personal checking, savings, time and IRA deposit accounts and a wide array of loan products including home equity, auto and personal loans. The residential loan department offers construction, purchase and refinance residential mortgage loans. The wealth management department offers a full-service suite of trust and portfolio management services. The aim of The State Bank is to become and remain "Your Financial Partner for Life." More information can be found at www.thestatebank.com.

CAUTIONARY STATEMENT:This press release contains certain forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements concerning future growth in earning assets and net income. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including, but not limited to, economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services, interest rates and fees for services. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release.